The Implications of Fiscal Policy with Rule-of-thumb Consumers in the New keynesian Framework in Iran: A DSGE Model Approach

Roghayeh Taifeh Jabbari (), Teymour Mohammadi () and Javid Bahrami ()
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Roghayeh Taifeh Jabbari: PhD student of Economics, University of Allameh
Teymour Mohammadi: Associate Professor of Economics, University of Allameh
Javid Bahrami: Associate Professor of Economics, University of Allameh

Quarterly Journal of Applied Theories of Economics, 2022, vol. 9, issue 1, 27-56

Abstract: This thesis investigates the impact of government spending shocks on macroeconomic variables in Iran, especially on private consumption in the form of a stochastic dynamic general equilibrium (DSGE) model, in a closed economy with non-Ricardian households and a relatively rigorous fiscal policy. The model simulation results show that non-Ricardian households are a stimulus to increase total consumption in response to government spending shocks relative to the baseline without non-Ricardian households. The findings also imply that the positive impulse of government spending in Iran does not allow for the dynamic growth of investment. In other words, The effect of spending shock on the investment is negative, while the employment of non-Ricardian household increased as wage increased, but investment declined. also, fiscal policy has a positive effect on production, although the multiplier is lower than one and will decrease over time. Given that the effect of government spending shocks on private consumption spending is positive. The model results do not follow Ricardian Equivalence Theorem, which is in the form of crowding-in

Keywords: Dynamic Stochastic General Equilibrium Model; Fiscal Policies; government consumption spending shocks; Non-Ricardian Households; Irans Closed Economy (search for similar items in EconPapers)
JEL-codes: C32 E32 E62 (search for similar items in EconPapers)
Date: 2022
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